No retirement crisis

While some middle-income Canadians are heading for a retirement shortfall, the percentage who are in trouble is below crisis proportions, according to Morneau Shepell’s Vision newsletter.

In an article called Closing the retirement income gap, chief actuary Fred Vettese says lower-income workers can already expect to have more disposable income in retirement than when they were working and would be better off without an enhancement in the Canada Pension Plan (CPP).

Read: The pivotal role of Pillar 1

“It is no secret that some Canadians are not on a trajectory to retire comfortably,” he says.

“This is why some provinces, Ontario in particular, feel the need to enhance the CPP or to introduce their own program. It is also why more than 70% of employers surveyed believe the country is experiencing a retirement crisis,” Vettese adds. “New data, however, show that what we are currently experiencing should not be described as a crisis.”

Read: Time to change the OAS indexing formula?

The research findings show the following:

  • a large number of households will continue to be significantly better off after retirement than when they were working; in these situations, oversaving certainly boosts retirement income, but it also results in a lower standard of living during one’s working years;
  • the lowest income group is generally well served by our current retirement income system;
  • about one in five middle- and upper middle-income earners could benefit from an enhancement in existing pension programs, or possibly the addition of a new supplementary program; and
  • trends point to a less favourable future, which means the retirement income gap will probably grow in the absence of government intervention.

He concludes that while some well-meaning pension reform proposals may actually represent a step backwards, it is possible for governments to devise a modest, targeted solution that addresses the retirement income gap without exacerbating the phenomenon of oversaving that exists in some pockets of the population.